| By Jeffrey M. Berry
Reprinted with permission from the author, from The Washington
Post, Sunday, November 30, 2003; Page B01.
Jeffrey
Berry is a professor of political science at Tufts University.
He is the author (with David F. Arons) of the just-published
A Voice for Nonprofits (Brookings Institution), from
which this article is drawn.
The leaders of the nation's nonprofits do many things well,
but representing their clients' interests before government
is not one of them. In the course of a major research study
that included interviews with the chief executives of tax-deductible
nonprofits, I found them remarkably ill-informed about the primary
law that governs their operations. When it comes to their rights
to lobby, many believe they have no rights at all. "I have
to wait until a legislator contacts us," said one executive
director. Another stated unequivocally, "We're not allowed
to lobby. We're not allowed to influence public policy."
Such views are not merely wrong, they're harmful. Not only
can charitable nonprofits engage in more lobbying than is commonly
accepted, they can lobby extensively if they take advantage
of a 1976 law that the Internal Revenue Service seems to have
no interest in publicizing.
Nonprofits that can offer donors a tax deduction for their
contributions play a special role in American society, and that
role is growing. There are more than 900,000 nonprofits now
registered with the IRS, more than three times the number 25
years ago. Most are small, with no presence in Washington. Among
those large enough to file a tax return (about 210,000), roughly
half are either health care or social service providers. They
are the foot soldiers in a largely private system that delivers
critical services to the disadvantaged. They are often closer
to the problems — and the solutions — than the policymakers
in city halls, state capitals and Washington. Yet the fear of
an IRS audit, no matter how unlikely, has deprived many nonprofits
of their voice and has hurt the very constituencies that they
intend to serve.
To gather systematic evidence on the role of nonprofits in
the public policymaking process, my research team and I surveyed
more than 1,700 tax-deductible nonprofits drawn randomly from
IRS records. The results demonstrate that most charitable nonprofits
sharply limit their advocacy before state legislatures and Congress
because they worry about violating the lobbying provisions of
the Internal Revenue Code. (The largest charitable nonprofits,
such as the American Cancer Society and the American Heart Association,
are sophisticated enough not to be intimidated by the law, but
these mega-organizations are a sliver of the nonprofit world.)
A few definitions might be helpful here. Charitable nonprofits,
whose tax-deductible status is an enormous benefit for their
fund-raising efforts, are often referred to as 501(c)(3)s, after
that portion of the IRS Code. Nonprofits that cannot offer a
tax deduction to their contributors — such as labor unions
and trade associations — are regulated under different
provisions of section 501. These 501(c)(5)s and 501(c)(6)s are
free to engage in unlimited lobbying.
We found that the typical executive director of a 501(c)(3)
has little understanding of what the law actually says. Almost
half of those surveyed are so ignorant of the law that they
don't even believe their organization has the right to take
a public stand on federal legislation (perfectly permissible),
while 45 percent believe they are not allowed to sponsor a debate
featuring candidates running for public office (they can't support
a candidate, but a candidate forum is just fine).
There's good reason why many nonprofit leaders have trouble
understanding what they can and cannot do in the public policymaking
process. The law is a patchwork of confusing, contradictory
and unworkable provisions. The heart of the problem is that
501(c)(3) says that nonprofits may lobby but not to any "substantial"
degree. Despite repeated requests over the years, the IRS resolutely
refuses to define what qualifies as "substantial."
Nonprofits are left to guess.
Yet, nonprofits are allowed to educate legislators and staffers
without constraint. So leaders of nonprofits believe they can
"educate" substantially, but not "lobby"
substantially. For political scientists, this is a preposterous
distinction. To educate policymakers is to lobby.
The inconsistencies and contradictions under 501(c)(3) are
breathtaking — they're a logician's nightmare. Nevertheless,
it is difficult to simply get rid of this regulatory framework.
A nonprofit that receives a tax-deductible donation is getting
an indirect government subsidy. The dollars that the Treasury
loses to nonprofits must be made up through higher taxes on
all of us. No one would argue that nonprofits should be able
to do whatever they want with charitable donations.
Although regulation is necessary, this particular set of restrictions
is strikingly discriminatory. No other sector of the interest
group universe is as constrained in its advocacy as are 501(c)(3)s.
This creates a huge imbalance. The so-called Gucci crowd on
K Street can lobby as much as it wants and spend as much as
it wants in representing trade associations or corporations
before government. Yet, legally speaking, disability groups,
hospices, community health centers and other 501(c)(3)s are
regarded as something of a threat to the integrity of our political
process. This is too large a price to pay for tax deductibility.
The lobbying restriction for nonprofits has its origins in
Treasury Department regulations issued in 1919. Congress strengthened
these regulations in 1934, adopting language that equated attempts
to influence legislation with "carrying on propaganda."
Included in the 1934 law, for the first time, was the stipulation
that any nonprofit engaged in "substantial" lobbying
could not retain its tax-deductible status. This law, with its
definition of lobbying as propaganda, remains in effect today.
Many of our interviewees told us they believed that the IRS
was vigilantly monitoring their political activity. On a number
of occasions we heard the story of how the IRS busted the Sierra
Club for its lobbying. The venerable environmental group infuriated
a powerful member of Congress, Democratic Rep. Wayne Aspinall
of Colorado, by taking out newspaper ads ridiculing a proposal
to flood part of the Grand Canyon. The day after the ads ran,
the IRS revoked the Sierra Club's tax-deductible status. Our
respondents spoke knowingly of this episode, as if it happened
recently.
It took place in 1966.
That the Sierra Club case still reverberates today is testament
to how scared nonprofits are of the IRS. This is ironic because
the modest, cobwebby Tax Exempt Office at the IRS hardly has
the resources to engage in anything more than symbolic oversight
of nonprofits. Contrary to what many nonprofit leaders believe,
the IRS is not on the lookout for evidence of any form of lobbying.
Only the visible signs of excessive lobbying — activity
that presents a challenge to the "substantial" standard
— has drawn the agency's interest.
If the IRS has a coherent strategy, it seems to be selective
enforcement. Agency officials know that audits of a small number
of nonprofits send shock waves throughout their larger communities.
Most worrisome is that the office will undertake a review based
on the complaints of an organization's rivals.
Compounding the problem of an ambiguous law and erratic enforcement
is the passivity of nonprofit CEOs. By failing to learn the
law, they are willing accomplices. Too often, when they do lobby,
they pretend otherwise. One executive director told me that
"We harass our state legislator all the time," while
insisting that her organization did not belong in our study
because "we are not involved in public affairs."
The irony in all of this is that there is a solution already
in place that allows nonprofits to lobby without having to worry.
In 1976 Congress passed a tax bill that included a specific
accounting mechanism so that nonprofits no longer would have
to guess what divides substantial from insubstantial lobbying.
This much-needed alternative method was then, unfortunately,
turned over to the IRS's Tax Exempt Office to implement. To
call its pace in writing the regulations snail-like would be
unfair to snails. It took 14 years before the office issued
regulations.
The 1976 alternative, known as the "H election,"
is crystal clear in specifying the amounts that a nonprofit
can expend on lobbying. Based on a sliding scale keyed to annual
income, a nonprofit can spend up to as much as 20 percent of
its revenues on lobbying. And because the regulations for the
H election define lobbying rather narrowly, very little of what
a nonprofit H elector does in its advocacy efforts counts as
a lobbying expenditure. In short, it's difficult for a typical
nonprofit to ever reach the H expenditure ceilings.
The H election is something of a stealth policy. Only about
2 percent of all 501(c)(3)s have chosen this option. When we
asked the head of one statewide nonprofit association if he
knew of the H election, his response was a common one. "I'm
completely ignorant of it," he confessed.
So what's the catch? There isn't one, really — only
that the H election requires nonprofits to keep a record of
their spending so they can prove they haven't exceeded the established
limits.
The good news is that taking the H election could not be easier.
Form 5768, which can be downloaded from the tax forms box at
www.irs.gov, only asks for an organization's name, address and
a signature. It takes no more than 60 seconds to fill out. The
IRS has also issued formal guidelines indicating that the H
election is not a red flag for an audit and it appears to have
kept its word.
Nonprofits are a lifeline for millions — for battered
women, immigrants, homebound senior citizens, AIDS patients,
the 43 million Americans without health insurance and countless
other constituencies who all too often fall through this nation's
safety net. As government itself grows leaner, it is relying
ever more heavily on nonprofits to do its work. From a standpoint
of good government, the best policy would promote communication
between government and its vendors.
Although it is legal for nonprofits to lobby under the "substantial"
standard, it's clear that most are inhibited by it. By taking
the H election, 501(c)(3)s can maintain their tax deductibility
while becoming more aggressive on behalf of the disadvantaged
segments of American society who come to them for social services
and health care. It's unlikely, however, that the H election
will ever become widely adopted without a firm push from the
IRS. As a result, those most in need of a powerful voice in
the political system will continue to receive the least representation.
The obstacles created by Section 501(c)(3) aren't just bad public
policy. They're unjust. |
